Mphasis ltd - Parag Research - Earns my two cents

Before you start reading this, please look into how IT companies can fail/cannot succeed

Top four threats

-  Dollar devalulation (how long these companies can they really hedge)
-  US Economy
-   Cloud computing & companies like salesforce.com
-   Competition from other countries and what happens if their currecy devalues


Obviously I am not up todate on what's going on Indian IT industry. Looks like Mphasis has good potential in the long run with strong parent like HP (PWC).  To really understand HP, one needs to understand the Big Four (used to by E&Y, Anderson/Accenture, KPMG, Deloitte). They are top tier consulting firms and strong market forces.

Good research by Parag. The more I read, the more I like them. I would hold my judgement on the buy and sell calls but definitely good research. Look at this report by Raunak. Great job

The story of Mphasis largely remains unchanged. Nevertheless, the company has reported a really good

quarter. Topline grew by 26% compared to Oct 08 and bottom line grew by 34% as compared to the same period. Since the previous year was just a seven month year, the annual numbers dont offer a sound basis of
comparison. Although the annual results have been appended. Ever since the acquisition by HP, there has been tremendous changes in the company in terms of aligning its cost structures. The operating margins when compared to last year's average show a difference of almost 10% , with current year's margin at 26%. This bout of profitability is also seen on account of new high value contracts which have come their way through generic sales growth as well as most of the contracts which have been gained due to the association with HP.

In terms of geographical segmentation 64% revenues is derived from the US, 20% from EU and APAC and
middle east contributes to 16% of revenues. The company added 771 employees this quarter, which is mainly on account of its acquisition of AIG's captive unit in October 09. The effect of the acquisition will only be apparent from Q1 of the forthcoming financial year. Total employee addition this year was 4,721 which takes the count to

Please read the rest of the report here

http://www.ppfas.com/pdf-docs/research/result-updates/mphasis-q4oct09-ppfas.pdf

I liked these six videos on Warren Buffet

Just a reinforcement for the weekend.

http://www.youtube.com/watch?v=MuR7XcDJw0I

http://www.youtube.com/watch?v=LH03WyBpgjU&feature=related

http://www.youtube.com/watch?v=nc1HAG4sMD0&feature=related

http://www.youtube.com/watch?v=XgCv5CqRws0&feature=related

http://www.youtube.com/watch?v=ljOH1j7emWw&feature=related

http://www.youtube.com/watch?v=jE-nbeqjqiI&feature=related

Interesting story of Levis and UCB

Are there some lessons to be learned for other brands? Can you imagine how these brands will be in 10-15 yrs with rising purchasing power?

http://economictimes.indiatimes.com/articleshow/5237510.cms?prtpage=1

Love these cigar butts - Aditya Birla Chemicals

CMP 77.50

MCap.(Rs. in Cr.) : 183 P/E (x) : 3.3 EPS (Rs.) : 23.58


BV (Rs.) : 102.59 Div. Yield (%) : 1.9 FV (Rs.) : 10.00

Wonder why this chemical company is selling cheap??? especially with below numbers. I am sure Walter Schloss and Benjamin Graham would buy these
 
3 Yr CAGR Sales (%) : 22.37
3 Yr CAGR Profit (%) : 25.66
Promoter Shareholding (%) : 56.31
Net Profit Margin (%) : 22.55
Return on Equity (%) : 21.07
 
Need to further investigate....Interesting... Atleast paying some dividend. Hope this is not like Gwalior Chemicals.
 

Another Cigar butt selling less than BOOK VALUE - Dhanus Technologies Ltd

DHANUS TECH

SELLING FOR 50 CRORES. BOOK VALUE 143. NO RED FLAGS ON A HIGH LEVEL. OPERATING BUSINESS. GOOD YIELD

Dhanus Technologies Ltd. is a rapidly growing Communications Services Company. The company, incorporated in 1993, offers Telecom Services, is into Tele-services, IT/ ITES and Telematics. The company has a strong product development team specializing in Communication Technologies, Logistics & Unified Messaging.




The Company is headquartered in Chennai, India & has operations in New Delhi, as well as California, US.


http://www.dhanus.net/pdf/15th%20Annual%20Report%20-%202007-2008.pdf

See Joel Green Blatt's video

http://www.valueinvestingcongress.com/downloads/p10/greenblatt/formula_investing_video.php

Warren Buffet Chat transcript with Columbia students

CNBC TRANSCRIPT: Warren Buffett & Bill Gates - Keeping America Great

Posted By: Alex Crippen
Executive Producer

cnbc.com
13 Nov 2009
12:09 AM ET



This is the unofficial transcript of the CNBC Town Hall event Warren Buffett and Bill Gates: Keeping America Great, taped Thursday, November 12, 2009 at Columbia University in New York City.



It was prepared for CNBC by Realtime Subscription Services.



ANNOUNCER: The embodiment of the American dream, Warren Buffett and Bill Gates, self-made billionaires whose values run as deep as their wealth. One redefined an industry, the other the modern investor. But both put their stock in America, and by investing in business and humanity, reaped the rewards of this great country's capitalist tradition. Today that tradition is under siege, our way of life questioned. And with America at an inflection point, a future generation looks for guidance from the world's two greatest capitalists. Now, they are going back to school, not to learn, but to teach. Showing the next generation of business leaders that wealth is not about the money you amass, but the number of lives you enrich. Tonight in a CNBC town hall event, Warren Buffett and Bill Gates share their secrets to keeping America great.



BECKY QUICK: A special CNBC town hall. I am Becky Quick at Columbia Business School at Columbia University. Let's hear it, guys. [CHEERS AND APPLAUSE] We are in the heart of New York City. This is the world's center of capitalism and this is the place where dreams really do come true. In fact, right now, look at all these people here today. We could be surrounded -- [CHEERS AND APPLAUSE] -- We could be surrounded by the next Warren Buffett or Bill Gates. How about you? You ready to go?



STUDENT: We are so excited to all be here today. You wouldn't believe how much tickets are being sold for out front.



BECKY: I know you're not telling the truth. You had to get in with your I.D., right?



STUDENT: Yes, this is true.



BECKY: We're ready to go tonight. Tonight it is all about Keeping America Great. [CHEERS AND APPLAUSE]





No people have done that better than Warren Buffett and Bill Gates. Folks, let's please welcome Warren Buffett and Bill Gates. [CHEERS AND APPLAUSE]



I see Warren is trying to work the home crowd here with Columbia. [CHEERS AND APPLAUSE]



Gentlemen, thank you so much for joining us tonight. This has been, as you know, an extraordinary year. This is a year where the rules have been completely rewritten, where we have thrown out the rule books, and we have seen icons collapse. This is also a time when a lot of people have probably wondered about our way of life. People in this very room. That's going to be our focus in just a minute. Gentlemen, before we get to that, the two of you may seem like an odd pair. For anybody who doesn't know you two well --



BUFFETT: You'll think more odd when we get through. [LAUGHTER]



BECKY: What brings you two together tonight? Why you two and why here with these business students here at Columbia?



WARREN BUFFETT: Well, we enjoy working together. Actually, when I left Columbia, they told me I would probably have to come back and repeat a few classes. So here I am.



BECKY: Bill, what about you? You are ready to go with the students?



BILL GATES: Yeah, it will be a lot of fun. Warren and I love getting the questions and talking about our optimism. [APPLAUSE]



BECKY: The reason you two are here tonight is this is a pivotal moment in history. People have questions about the economy, about our entire system of capitalism. And, gentlemen, let me ask each of you, over the course of the last year, was there ever a time that you had doubts about capitalism and about our way of life?



BUFFETT: No, there was not a time. If there had been, last September when we invested a lot of money, that was when the country was looking into the abyss. The money was flowing out of money market funds. The commercial paper market died and everything. We put $8 billion to work in just a matter of a few days then. So I never lost confidence in the system. This country works, you know. We've got 200 years of proof. And it's going to continue to work. [APPLAUSE]



BECKY: Bill, what do you think, Bill?



GATES: Well, we have a complex financial system which we have proven that we can make mistakes. But more fundamental than that is the innovation, the fact that you can create new companies, that people are willing to take risk and invest, that there's great science going on. This country still has the best universities, the best science, and we're going to tune our system of capitalism, you know. The idea that you have a lot of short-term loans covering long-term needs, the amount of leverage that was there, there are definitely some lessons. But the fundamentals of the system, a marketplace-driven system where we invest in education and a great infrastructure for the long-term, that's continued. And, you know, I'll bet there are some inventions that took place in that fall in the darkest hour: People were working on new drugs, new chips, new robots and things to make life better for everyone in the decades ahead. [APPLAUSE]



BECKY: All right. Tonight is all about the students and why don't we start out and get right to it. Why don't you start out. You ready to go?



QUESTION: We are honored to have you here at the university. [APPLAUSE] My question for you is directed to both of you, Mr. Gates and Mr. Buffett. I'd like to know your perspective on whether greed and immoral behavior, unethical behavior, were key causes of the recent financial crisis.





BUFFETT: You went out toward the end, Becky.



BECKY: Just wondering whether greed and corruption were behind what happened.



BUFFETT: It certainly played a part. We have always had greed. That didn't get invented in the last few years. And greed, fear in the third quarter -- I mean, the American people were really panicked there for a while. And it affected their -- it started out on Wall Street but then spilled over into the general economy subsequently. But we're never going to get rid of greed. We're never going to get rid of fear. What we do have is a system, as Bill said, a market system where we have the quality of opportunity and the rule of law combined to unleash human potential in this country over the last couple of hundred years to the degree nobody would have believed possible a few centuries before that. There's nothing that's gone wrong with that system. Our economy was sputtering and still is sputtering some. But we've got the greatest engine ever devised. And it's just beginning. Greed will continue. Don't worry about that. Oliver Stone is putting out a second film here pretty soon. Probably get mentioned again in this one with Gordon Gekko making a return. But that is not what drives the American system. What drives the American system is the quality of opportunity in a market system and the knowledge that when you get out of here, you're going to enjoy the fruits of the knowledge you have gained. And it will keep working. I'd love to trade places with any of you.



BECKY: Bill, do you have any extra thoughts on that?



GATES: Well, the best systems are ones where you have good short-term metrics, great accounting, looking at profits, looking at risk and willing to do things long-term. Investing in new research, letting people build new companies. I was a huge beneficiary of this country's unique willingness to take risk on a young person. And, you know, I got to hire people who were older. I got to sell to people who were older. And it was kind of a dream come true. And that kind of thing is -- other countries have seen it and they are trying to create that same dynamic. And that's good for the world. It's excellent that China and India will borrow our ideas about universities, about entrepreneurship, simplification of business. None of us want to borrow this extreme leverage that we got into. But in a sense, that's kind of a -- I don't want to say minor, but it doesn't speak to the heart of why things have worked so well.



BECKY: All right. Let's get to another question. How about right here?



QUESTION: Hello. My name is Accosia Bagima. I am from the Northern Virginia area and I'm a first-year student here at Columbia. And I want to thank, once again, both of you for coming. It's an honor. My question is directed toward Mr. Gates. Mr. Gates, I know you're not in the finance industry, but can you tell us what you were feeling when you first heard that Lehman was filing for bankruptcy?



GATES: I don't follow investment banks, you know, very closely. So it didn't strike me as fundamentally a terrible thing. In the technology business, the two companies I admired the most, Wang Industries and Digital Equipment, had both basically gone bankrupt. Digital actually got bought. And so the fact that there's these ups and downs, certain firms get knocked out, I didn't have any sentimentality over that particular firm. Now, this knock-on effect where other people had debts to them and those were going to be very hard to settle and that complexity might cause things to freeze up, that I called up Warren and I said, "Should I be worried?" And he said, "A little bit." [LAUGHTER]



BECKY: Warren, was it a mistake for the government to allow Lehman to go under?



BUFFETT: It may have been. But I would say overall, the officials in Washington did a terrific job of dealing with really what was an economic Pearl Harbor, as we talked about. So I would say that if Merrill hadn't been bought by the B of A, Merrill would have gone very quickly. And the dominoes were really lined up. And I don't think it was fully appreciated, perhaps, what a big domino Lehman was or how close it was to the next big dominoes. But overall, I give (former Treasury Secretary Henry) Paulson, I give (Federal Reserve Chairman Ben)Bernanke, I give (FDIC Chairman) Sheila Bair, I give (Treasury Secretary) Tim Geithner, I give them very high marks for the fact they took unprecedented action. [APPLAUSE]



BECKY: Let's get to another question. Right back here at the microphone. Go ahead.



QUESTION: I hope this works.



BECKY: It does. It sounds like it.



QUESTION: Hi, my name is Greg Letter. I grew up in Ohio and I'm also a current student, obviously. My question was with Lehman Brothers and Goldman Sachs, this relates to Mr. Buffett, you had the opportunity to invest. I was wondering how you chose to invest in Goldman Sachs and why you chose not to maybe invest in both, or what made you not decide to invest in Lehman Brothers.



BUFFETT: I had more confidence in both the numbers and the management of Goldman Sachs than any other major firm in Wall Street at that time. Now, there could have been things happened that would have made Goldman Sachs be next in line. (Goldman CEO) Roy Blankfein had said I worked 30 seconds behind Morgan Stanley. This is covered very well in the book called "Too Big To Fail" by Andrew Ross Sorken. But I did not think the system was going to go under. I felt Washington in the end would do the right thing. I thought if they did the right thing, Goldman Sachs was -- I thought it was the best-run operation. I thought its figures were the most solid and I thought they would prosper the most in the future ahead. Plus I liked the terms, too. [LAUGHTER]



BECKY: Warren, you said at that time they had the best management and a lot of other things. Did you change your mind since then?



BUFFETT: Pardon me?



BECKY: Have you changed your mind since then? You said at that time they had the best management.



BUFFETT: Goldman, my experience with Goldman goes back to when I met Sidney Weinberg in 1940. I followed the company a long time. They have a discipline around there that I think particularly in their marking to market and all of that, I think probably is the best among the firms in Wall Street. And I thought Roy Blankfein had a very strong appreciation of risk. Now, if the system went down, everybody gets hit. But I felt to a great extent they had factored the best people into the business. So they were my number one choice. I had a few other choices that were offered to me. [APPLAUSE]



BECKY: Let's get to another question, everybody. Another question.



QUESTION: It's a pleasure to be here with both of you today. My name is John Lemley. I'm originally from Scarsdale, New York. Given the severity of the economic downturn, which some attribute to systemic breakdown in risk allegation and underwriting standards, a fiercely partisan debate has ensued regarding the appropriate role of government. Can this role be positive and if so, how?



BECKY: What do you guys think about big government?



GATES: Well, there's clearly a role for the government in business cycles. And over time, that's been tuned, you know, mistakes have been made. Now, the question is -- and that's largely measured through inflation and interest rates. Now, there's a question of could there be a measure of risk that would cause them to step in and maybe tax transactions, make the bigger firms put more money aside. That is still really a question of whether you can recognize these situations and actually have government play a very positive role. Now, as things start to fall apart, we know there are ways that taking firms that are going down and handling those in a more expedited way -- there's a lot that can be done there. But the basic idea of, can you spot bubbles? Can the government spot bubbles? That's a great question. Some great economists have some ideas. But it is not a proven territory.



BUFFETT: Last September, only the government could have saved things. The whole world wanted to deleverage. And they were deleveraging under conditions of extreme haste and with guns to their head in some cases. And the only entity that could possibly leverage up at the same time that everybody else wanted to deleverage was the Federal government. And when 200 billion flowed out of money market funds in a couple of days, when commercial paper stopped, only the Federal government could act then. And fortunately we had the people there who recognized that and acted promptly. The government has a huge role. And now going forward, it's a very tricky thing to figure out how to prevent excessive leverage and prevent off-balance sheet arrangements from getting in trouble or for just having people at the top of major institutions that run risks they shouldn't be running. But we're wrestling with that right now. There should be more down side to the head of any institution that has to go to the federal government to be saved for reasons of the greater society. And so far, we have been better at carrots and sticks in rewarding CEOs at the top. But I think some more sticks are called for.



BECKY: All right. Let's get to another question. [APPLAUSE]



QUESTION: My name is Brian, first-year student here at Columbia. And I run a business school right now and seems to me a lot of the villains in the full credit crisis were business school graduates. To what extent do you guys think that business schools like Columbia were in some sense responsible for what transpired in the credit crisis?



GATES: Well, remember that capitalism has been massively successful, you know. Standard of life, medicine, all these great things have come out of it. And business schools play a role in training people to think about value, leadership. There's wonderful skills that are taught at great schools like this. And so the fact that, yes, we have had a crisis and we have dropped back, maybe we wasted two or three years net because of the things that were done wrong, that doesn't say that business schools aren't performing a great service, you know. The case studies of this crisis will be taught here for decades to come. And so at least we'll get that benefit out of the pain we went through. Leverage is a very dangerous thing. And perhaps, you know, Warren talked about derivatives as weapons of mass destruction. That wasn't much heeded. And yet at the end of the day, what happened here, particularly in the real estate sector, the notion of risk that price would drop down and what that meant systematically for those instruments, it wasn't well understood. And the mass destruction followed as predicted.



BECKY: Warren, can you teach ethics in a business school? Does it have to come from somewhere else?



BUFFETT: Come back now?



BECKY: Can you teach ethics at a business school?



BUFFETT: Well, I think the best place to learn ethics is in the home. I think most of us get our values from what we see around us before we get to business school. I think that it's important to emphasize them, but I think that if I had a choice of having great education and ethics fully on in the home or as a course in a school later on, I would choose the home. The wonderful thing about it is in this country, is you can succeed magnificently with ethics. It's not a hindrance. It's a help sometimes. It's a neutral sometimes. But it's not a hindrance at all. And to cut corners, you know, everybody here has a wonderful future. I mean, this is an economy you're going into that is so much -- [APPLAUSE] If you look back on the 19th Century, we had seven great bank panics. If you look back at the 20th Century, we had the Great Depression and world wars and flu epidemics. This country doesn't avoid problems. It just solves them. And in the next 100 years, our machine will sputter again, you know. Maybe 15 years will be so-so years, but there will be 85 great years. And during the 20th Century the Dow went from 66 to 11,400, so this is fertile soil that you're working in and there's no reasons to cut corners.



BECKY: All right. Let's get another question. [APPLAUSE]



QUESTION: Hi. My name is Katrina Gankena, and I was born in Russia. And I'm a second-year student at Columbia Business School. My question is for Mr. Gates. What industry do you think is going to produce the next Bill Gates? Because that's the industry I want to get a job in. [LAUGHTER] [APPLAUSE]



GATES: Industries do have different paces of innovation. So the IT industry, driven by the magic of software, the magic of the optic fiber, magic of the chip which doubles in power every couple of years, it's been the industry that has not only been the most exciting, it's also changed the rules for many other industries. The idea of information being available, what the online world is like, that's incredible. I'll tell you, there are a few other industries that will compete for being exciting in the decades ahead. The energy business, some approach will provide cheaper energy that's environmentally friendly. And there's a lot of science, a lot of business. That's a global thing. There will be some great careers there. Medicine, you know. We haven't solved Parkinson's or Alzheimer's or about 20 diseases of these poor countries, and yet we can be sure that we're on track to do that. And so those three industries I think you would do great in. There's many others, but those are the ones that have the strongest appeal to me.



BUFFETT: Find what turns you on. Find what you have a passion for. If somebody said to me when I was getting out of Columbia, you know, that Bill's business was going to be the one that would be exciting, you know, I don't think I'd have done so well. [LAUGHTER] But I knew what turned me on. I had a professor, Ben Graham, I offered to go to work for him for nothing. He said, "You're overpriced." Nonetheless, I went into the business. [APPLAUSE] I will guarantee, you will do well at whatever turns you on. There's no question about that. Don't let anybody else tell you what to do. You figure out what you are doing. [APPLAUSE]



BECKY: All right. We actually got the chance to poll these students. And we asked them if there would ever be a company as transformative as Microsoft in their lifetime. You might be surprised at their response. We will tell you right after this break.





BECKY: Welcome back to CNBC's town hall. We are with Bill Gates and Warren Buffett at the Columbia School of Business at Columbia University. We're in the heart of New York City. And before we went to that break, we asked one of our students -- one of our students actually asked, which industry is going to be producing the next Bill Gates. Now, as we mentioned, we got the chance to take a poll of the students in this room and we asked them if they thought they would ever see a company as transformative as Microsoft in their lifetimes again. Gentlemen, eight out of 10 said yes. That's 80% saying yes, they do think this will be another issue. You guys are a very enthusiastic bunch. Bill, do you share that sense of optimism?



GATES: Absolutely. Capitalism is great and having thousands of things going on in parallel. And a lot of them fail. Some are just mediocre. But the ones that are special can grow and, you know, stun everybody. And in all those fields I mentioned, there is going to be several companies that kind of take your breath away.



BECKY: All right. Let's get to another student question. [APPLAUSE]



QUESTION: Hi, my name is Lisa Williams. I'm from South Orange, New Jersey. I'm currently a first-year at the MBA program. Glad to have you both here. My question is actually for Mr. Buffett. There has been a lost of discussion around the true drivers with the recent deal with Burlington Northern . I was wondering if you could share with us your key motivation for wanting to increase exposure to the railroad sector at this time.



BUFFETT: You know, when I was six, I wanted a railroad set and my dad didn't get it. [APPLAUSE] You think about it. The railroads are tied to the future prosperity of this country. You can't move a railroad to China or India or anyplace else. We start out with the premise, and I can't think of a more sound premise, that there will be more people in this country, 10, 20, 30 years from now. They will be moving more and more goods back and forth to each other. And you have the most environmentally friendly and the most cost-efficient way of doing that on the railroads. The Burlington Northern last year moved -- on average it moved a ton of freight, 470 miles on one gallon of diesel. That is far, far more efficient than what takes place over the highways. You have the situation where overall they use 1/3 less fuel, they put far fewer pollutants into the atmosphere than trucks will. One train will supplant 280 trucks are so on the road. So the rails are in tune with the future. I like the West. I like the 30-some-thousand miles of roadway that Burlington has. And, you know, if this country has a poor future, the rails have a poor future. I'm willing to bet a lot of money, 34 billion to be specific -- [LAUGHTER] -- on the fact that 10 years from now, 20 years from now, 50 years from now, there will be more and more goods being moved by rail and better for the country and it will be better for the shareholders of the Burlington Northern.



BECKY: OK. [APPLAUSE] Another question.



QUESTION: Hi. My name is Josh Porter. I'm a first-year from North Reading, Massachusetts. It's an honor to have you both here. So we just went through the worst financial crisis of hopefully all of our lifetime. And I know it keeps a lot of Americans up at night, you know, worrying about their future. What, if anything, keeps either of you up at night?



BUFFETT: I try to live my life so nothing keeps me up at night. [APPLAUSE] I don't like to sound, you know, like a mortician during an epidemic or anything, but last fall was really quite exciting for me. [LAUGHTER] I don't wish it on anybody, but there were things being offered. There are opportunities for us to do things that didn't exist a year or two earlier. So I really don't -- I don't want to be in a position where I am leveraged or something of the sort that does keep me up at night. I did not worry about the ultimate survival of our economic system. We were messed up. Wasn't any question about that. But the plants haven't gone away. The cornfields haven't gone away. The talent of the American people hasn't gone away. The innovativeness of the next Bill Gates hasn't gone away. This country was going to do fine. I knew that. We just had to get things straightened out. And we're well on the way to having that happen.



BECKY: Bill, you mentioned -- [APPLAUSE] You mentioned before that you called Warren and he said, ‘Yeah, we should maybe be a little worried.’ Did you stay up late that night worrying about it?



GATES: No. The financial system, fortunately, good leadership has a lot of self-correction built into it. I think there are a few things that could surprise us that are negative. You know, big terrorist event sometime in the next 20 years, that would be a big negative. And a pandemic, which we're actually having in terms of the rate of spread of a new flu, one right now. And fortunately, its actual impact is very modest, way less than any such thing. So you have to keep your eye out for a few outliers like that. Those are the two that I would point to. But overwhelmingly, the rest of the system, you know, there is self-correction built into it. The long-term thing that I don't lose sleep over but I worry about is that we do have our education system, particularly the K through 12 part, not improving as much as we should. And it's an important system for opportunity, it's an important system for the economic strength of the country, and since it hasn't improved that much, that's a bit scary and needs a lot more attention.



BUFFETT: Becky, if you had a wonderful farm and you knew the next 50 years there would be five droughts but there would be 45 good years, I mean, you would not become paralyzed thinking about the five drought years. You would recognize that you've got a system that works very well over time, and that's our American economic system.



BECKY: Since we just had the drought year, does that make it less likely for the --



BUFFETT: No. If you study statistics at Columbia, you'd recognize that -- [APPLAUSE]





BECKY: OK. Let's get to another question. Right back here.



QUESTION: I'm Peter Lawrence, first-year student from Columbia. And, first of all, thank you both so much for coming here. Mr. Buffett, the recent runup in the market has been historic. And it seems that many people question the sustainability of the current price level. Do you think the rally is for real?



BUFFETT: What's going to happen tomorrow, huh? [APPLAUSE] Let me give you an illustration. I bought my first stock in 1942. I was 11. I had been dillydallying up until then. I got serious. [LAUGHTER] What do you think the best year for the market has been since 1942? Best calendar year from 1942 to the present time. Well, there's no reason for you to know the answer. The answer is 1954. In 1954, the Dow … dividends was up 50%. Now if you look at 1954, we were in a recession a good bit of that time. The recession started in July of '53. Unemployment peaked in September of '54. So until November of '54 you hadn't seen an uptick in the employment figure. And the unemployment figure more than doubled during that period. It was the best year there was for the market. So it's a terrible mistake to look at what's going on in the economy today and then decide whether to buy or sell stocks based on it. You should decide whether to buy or sell stocks based on how much you're getting for your money, long-term value you're getting for your money at any given time. And next week doesn't make any difference because next week, next week is going to be a week further away. And the important thing is to have the right long-term outlook, evaluate the businesses you are buying. And then a terrible market or a terrible economy is your friend. I don't care, in making a purchase of the Burlington Northern, I don't care whether next week, or next month or even next year there is a big revival in car loadings or any of that sort of thing. A period like this gives me a chance to do things. It's silly to wait. I wrote an article. If you wait until you see the robin, spring will be over.





BECKY: But at the same time -- [APPLAUSE] Warren, you have repeatedly said over the last year that investing in American areas is a bet on the future of America. But you have also invested overseas, companies like BYD. You both spent some time in China. Are there more opportunities overseas or right here in America?



BUFFETT: I see more opportunity in the United States. We're the biggest economy and we're looking for big deals. But I am delighted to find something, you know, whether it's in China or whether it's in Israel, like Iscar or whatever it may be. There are more opportunities in the United States than anyplace else.



BECKY: Bill, you agree with that?



GATES: Well, yes. The U.S. benefits as the globe benefits. You're not going to have a case where the rest of the world does poorly and the U.S. does well. Our fate is tied to open trade, innovation everywhere. You know, even the Burlington, some of the stuff that's on those railroads might come from other countries.



BUFFETT: I hope so.



GATES: It's exciting to see what's going on in China. It's great for us. If we had a choice for all the people in China to be as rich as we are versus be as poor as they were back in 1979, we'd be way better off to say, you know, let's have them be consumers and inventors just like we are. They are a long ways away from that. But they are a large enough population that great things are happening there. And, you know, many countries that we thought of as basket cases and we sent lots of aid to, like Brazil or Mexico or Thailand, are now big contributors. So it's good for the world that it's not as dependent just on the U.S. But the U.S. is where the energy revolution is likely to happen, the IT revolution will continue. We are expected to lead the way.



BECKY: All right. We're going to be back with another question in just a moment. [APPLAUSE] And by the way, if you have the chance, how would you like to have Warren Buffett or Bill Gates as your career counselor? Well, we're going to have that when we come right back. [APPLAUSE]





BECKY: Welcome back, everybody. We have more questions for Bill Gates and Warren Buffett. And we are running through them, but let's keep them going. Got a question right over here.



QUESTION: My name is Erica Braley and I am a second-year student. My question is for Mr. Gates. What is the most important thing you do every day?



GATES: Hmmm. [LAUGHTER] [APPLAUSE] Well, I do a lot of variety. I think reading a lot, you know, and continuing to learn. I'm in a lot of new areas in the Foundation, education, health. And I love reading a lot. So I think, you know, arming myself with that knowledge and sitting down with people who live the topic and brainstorming with them, that's what helps me back the right people and make sure I know what's going on. So I guess I'd say learning is what is the key thing. [LAUGHTER] [APPLAUSE]



BECKY: What was that? Let's get to another question.



QUESTION: Mr. Buffett, Mr. Gates, thank you for being here today. My name is Justin Heyman, I'm a second-year MBA, as I get ready to graduate, I was wondering, what's the one thing that your MBA didn't prepare you for when you got out into the real world?



BUFFETT: Well, I was -- it prepared me very well, not the whole degree, but specific professors prepared me very well for what I wanted to go into. I knew I was interested in investing, like I say, from the time I was six or seven years of age. So I was lucky that I found what turned me on early on. And I had these two marvelous professors here at Columbia that just being around -- I had read all the stuff they had written. So it wasn't I was acquiring lots of incremental knowledge but I was getting inspired. They were terrific for me. They treated me like a son. They would take me out to dinner. Ben Graham did the same thing for me. So it gave me confidence in myself. It just propelled me into a field I already love with a terrific tailwind from these professors that believed in me. [APPLAUSE] But let me add one point because -- to the MBA situation. Right now, I would pay $100,000 for 10% of the future earnings of any of you. So anybody that wants to see me after this is over -- [LAUGHTER] [APPLAUSE] If that's true, you are a million-dollar asset right now, right, if 10% of you is worth 100,000? You could improve -- many of you, and I certainly could have when I got out, just in terms of learning communication skills. You know, it's not something that is taught. I actually went to a Dale Carnegie course later on in terms of public speaking. But if you improve your value 50% by having better communication skills, that's another $500,000 in terms of capital value. See me after the class and I'll pay you 150-thousand. [APPLAUSE]



BECKY: Warren, you bring up your time here. I don't know if you can see the monitors back here, but we did take a look at your yearbook and steal your picture from 1951 year.



BUFFETT: Uh-oh.





QUICK: I think we have a picture in the back. There you are. [APPLAUSE]



BUFFETT: I don't think I'd pay $100,000 for 10% of that guy. [LAUGHTER]



BECKY: Another question right here.



BUFFETT: Hi. My name is Oleg Cheesh. I'm a second-year MBA student here. My question is for Mr. Gates. You obviously worked very hard to get to where you are. Could you reflect on what role pure luck played in your success?



GATES: Well, I was lucky in many ways. I was lucky to be born with certain skills. I was lucky to have parents that created an environment where they shared what they were working on and let me buy as many books as I wanted to. And I was lucky in terms of the timing. The invention of the microprocessor was something profound. And it turned out only if you were kind of young and looking at that could you appreciate what it meant. And then I had been obsessed with writing software. It turned out that was the key missing thing that would allow the microprocessor to have this incredible impact. So in timing and skill set, in some of the people I was lucky enough to meet, you know, meeting Warren and talking to him, learning from him, it is unusual to have so much luck in one life, I think. But it's been a major factor in what I have been able to do.



BECKY: All right. Another question right here.



QUESTION: Hello, my name is Ugin Quinn, I'm from Deerfield, Illinois. And I'm a first-year student at Columbia Business School. I'd like to direct my question to both Mr. Buffett and Mr. Gates. In the context of both your professional relationship and unique friendship, what do you admire most about each other?



BECKY: OK. Who wants to take that one first? [LAUGHTER]



BUFFETT: My athletic ability. Say that. [APPLAUSE] Well, I would say what I really most admire about Bill is the view he has about what he should do with the wealth he's accumulated. I mean, as he said, he was very lucky. He was born in the right country, at the right time, with the right wiring and all of that sort of thing. In the end, he knows he's a beneficiary of a terrific society, and not everybody gets the long straws like he and I did. So he is -- and he has this view that every human life worldwide is the equivalent of every other human life, and he's backing it up not only with money, but backing it up with his time. And his wife, Melinda, is backing it up with her time. And they are really going to spend, you know, the last half of their lives or so using both money, talent, energy, imagination, all improving the lives of 6.5 billion people around the world. That's what I admire the most. [APPLAUSE]



BECKY: Bill.



GATES: With Warren, there are a lot of things you could pick, you know, his integrity as an example for the world. His sense of humor. But I think I'd pick his desire to teach, his desire to teach things that are complex and put them in a simple form so that people can understand and get the benefit of all his experience, all his models of how the world works. He loves to teach. And he does it meeting with students. He does it in his annual newsletter. He does it when he's talking to me on the phone. It's a real gift that I admire incredibly. [APPLAUSE]





BECKY: Let's take another question right here.



QUESTION: Mr. Buffett, Mr. Gates, thank you for being here tonight. I am Ibrahim Dolly, first year here at Columbia. I came from Portugal. I have a question for both of you. You both knew early in your careers what you wanted to do in your life. What advice do you have for those of us who are a little bit unclear?



GATES: Well, finding the thing that you are passionate about and that you are good at can sometimes take a period of years. I think Warren and I were lucky we kind of ran into it. I wasn't even sure it was software. I was kind of obsessed with it but then it wasn't clear it could be a career. When that happened, it was great. I think most other people get into their 20s and have to try out some different experiences. And some things will expose you to a lot of different businesses, a lot of different work opportunities. And I think you can make your first few jobs optimized for getting that exposure. And then when you want it, see the thing that you want to be fanatical about and just jump on to that.



BECKY: All right.



BUFFETT: First of all, I'd say marry the right person. [LAUGHTER] And I'm serious about that. [APPLAUSE] It will make more difference in your life. It will change your aspiration, all kind of things. It's enormously important who you marry. Beyond that, I would say that do what you would do if you were in my position, where the money means nothing to you. At 79, ... I work every day. And it's what I want to do more than anything else in the world. The closer you can come to that early on in your life, you know the more fun you're going to have in life and really the better you're going to do. So don't be driven where you think the last dollar is presently or anything of that sort. And then also go to work, if possible, for an organization or an individual that you admire. I mean I offered to go to work for Ben Graham because there was nobody I admired more in the business than him. I didn't care what he paid me. When he finally did hire me in 1954, I moved from Omaha to New York and I didn't know what I was getting paid until I got my first paycheck. But I knew I wanted to work for Ben Graham. And I knew I would jump out of bed every morning and be excited about what I would do and I would go home at night smarter than I was in the morning. Go to work at a job that turns you on and a person that turns you on and institution. [APPLAUSE]



BECKY: Stay right here. We will be right back.





BECKY: All right. Class continues, everybody. We are back with the two greatest capitalists out there with Investing 101, back to more students’ questions. Why don't we start right here?



QUESTION: My name is Adam Van Dam and I'm a first-year student here. This question is for Mr. Buffett. If the Burlington Northern acquisition is any indication of your long-term buy and hold forever investment philosophy, I am wondering if the financial crisis has impacted that philosophy or your investment process in any way?



BUFFETT: No. It hasn't changed at all. We like products like this. How is this for shameless products? [APPLAUSE] This started in 1886. It's gone through all of these events. And the end will be 1.6 billion eight-ounce servings of Coca-Cola products come today and there will be more next year. We want to be in business with a durable competitive advantage with managements we like and trust and do them at a price we like. It hasn't changed a 1/10 of a degree. Incidentally, we own Fruit of the Loom, too, but I'm not going to do a product. [APPLAUSE]



BECKY: OK. Our next question right here.



QUESTION: Hi, I'm Brian Seedabalker. I'm a second-year student. Mr. Buffett, it's great to see you again. I was on the trip to Omaha last month. Thank you for hosting us. My question is, how would you recommend an individual investor who follows the Graham and Dodd philosophy to allocate their capital today?



BUFFETT: Well, it depends whether they are going to be an active investor. Graham distinguished between the defensive and the enterprising and that. So if you are going to spend a lot of time on investment, you know I just advise looking at as many things as possible and you will find some bargains. And when you find them, you have to act. It doesn't -- it hasn't changed at all since I was here in 1950, 1951. And it won't change the rest of my life. You start turning pages. When I got out of school, I turned every page in Moody's 10,000-some pages twice, looking for companies. And you have to find them yourself. The world isn't going to tell you about great deals. You have to find them yourself. And that takes a fair amount of time. So if you are not going to do that, if you are just going to be a passive investor, then I just advise an index fund more consistently over a long period of time. The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Most of you don't look like you are overburdened with cash anyway. [LAUGHTER] Cash is going to become worth less over time. But good businesses are going to become worth more over time. And you don't want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it.



BECKY: Does that mean you think we are through the roughest times? You had always kept the cash word around, too.



BUFFETT: We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night. But it's not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially. The worst -- the financial panic is behind us. The economic spillout which came to some extent from that financial panic is still with us. It will end. I don't know if it will end tomorrow or next week or next month. Or maybe a year. But it won't go on forever. And to sit around and try and pick the bottom, people were trying to do that last March and the bottom hadn't come in unemployment and the bottom hadn't come in business but the bottom had come in stocks. Don't pass up something that's attractive today because you think you will find something way more attractive tomorrow.



BECKY: Another question right here.



QUESTION: Mr. Buffett and Mr. Gates, my name is Antionette Genevieve. I am a first-year executive MBA student. And I actually work at Goldman Sachs, so thank you for your investment. [APPLAUSE]





BUFFETT: Why aren't you at work? [LAUGHTER] [APPLAUSE]



QUESTION: My question to you is I'd like both of your thoughts on the investment of alternative energy as for developing our economy and getting it back on track.



BECKY: Bill, you touched on this earlier.



BILL: Well, there are many, many ideas. And there's enough that we can say most of them will turn out to be dead ends. You know, the solar-thermal, solar-electric, nuclear is going to go through some of the revival and see if it can solve some of its cost challenges. As a country, we want to make sure all of those get lots of R&D and regulatory enablement because one of them is going to give us much cheaper power without causing any problem. We don't know which one it is. And we don't have quite as much R&D going into those things as I'd like to see. We have quite a bit, but I think the government policies could drive for more. But it is one of these areas that is somewhat faddish in nature. When you have a lot of energy focusing on a field, the amount of money that goes in is very large. And the overall return on capital is often quite large. The car industry in its heyday was a disaster. The airline industry, even the software industry because people don't remember all the non-Microsofts that don't exist until today. When something is hot, you get kind of a bubble. So energy, you're going to have to be a bit careful to make sure it's one that's really got its cost structure in line and it's not just being pushed along by subsidies and there will be scientific surprises. So a very hot area, but not necessarily a good area for investment.



BECKY: All right. Why don't we leave it there for now? When we come back, we will have more with Bill Gates and Warren Buffett. [APPLAUSE] We'll be talking about leadership and President Obama right after this break. [APPLAUSE]







BECKY: All right. Welcome back, everybody. We are at Columbia University. And right now we're going straight to the top of Columbia Business School. We are joined by Dean Hubbard. [CHEERS AND APPLAUSE] Glenn Hubbard, by the way, is not only the head of the Business School here, he also happened to serve at the White House where he was chairman of the Council of Economic Advisors. So this is a man who knows not only about what's happening in the economy, but also what's happening with these students. You talk to them all the time. What's the question that you'd like to pose to Mr. Gates and Mr. Buffett?



HUBBARD: Thanks, Becky, and thanks to both of you for being here today. And, Warren, welcome home.



BUFFETT: Thank you. [APPLAUSE]



HUBBARD: Warren, one thing you said years ago that's always stuck with me is you never know who is swimming naked until the tide goes out. And that, of course, says maybe there's some value in knowing when it's going to be low tide. It also says there's value in knowing context. How do we develop -- how do we encourage business leaders who understand context and connect the dots?



BUFFETT: Well, I think they have learned a lot about that in the last year. Some never learn, you know. At Berkshire, we have actually 70-some managers. I think most of them are a fair amount smarter than they were 15 months ago but they were plenty smart to go in. But, you know, I think that what I learned from a Ben Graham, who came up here every Thursday afternoon. He didn't need to do it, you know. He donated whatever he got paid back to the school and all of that. But having sound principles takes you through everything. And the bedrock principles that really I learned from Graham and Dodd, I haven't had to do anything with them. They take me through good periods. They take me through bad periods. In the end, I don't worry about them because I know they work.





BECKY: Bill, what do you think is the most important character for a business leader to have?



GATES: Well, it's surprising that the fundamentals of business are pretty straightforward, you know. You try to take more in income than you spend in cost. That's a pretty straightforward subtraction. But it's surprising in terms of projecting out into the years ahead that, you know, are we making the right investments, are we gaining on the competition, are we making it a little bit harder for people to replace what we're doing? That kind of common sense, I guess you've got to develop it through experience. And I think it's neat if you are young and you can see that in a small scale and be hands on with it because a lot of people who start with large businesses may have a hard time with it. So, you know, the basics are pretty straightforward. Learning how it works and doesn't work in a variety of industries, by reading a lot, I think that's something that comes with time and a business school is an intense period where you can get ahead of the game.



BUFFETT: I send one message out every year and a half or two years. They get one letter from me every couple of years. And basically it says, run this business like it's the only business that your family can own for the next 100 years. You can't sell it. But every year don't measure it by the earnings in the quarter that year. Measure it by whether the moat around that business, what gives it competitive advantage over time has widened or narrowed. If you keep doing that for 100 years, it's going to work out very well. Then I tell them basically if the reason for doing something is everybody else is doing it, it's not good enough. If you have to use that as a reason, forget it. You don't have a good reason for doing something. Never use that.





BECKY: Let's get to some student questions. [APPLAUSE]



QUESTION: Mr. Buffett, Mr. Gates, it is absolutely fantastic having you here. Thanks a lot. My name is Kata Cafunka. I am a second-year MBA student here at Columbia. Actually, my question is really related to what you were asking. Many of us and many people in general aspire to become somebody like you. But actually only a few people got that height, right? So what do you think were the major qualities that you have that distinguish you from the majority?



BECKY: All right. Bill, Warren, what makes you stand out from the crowd?



BUFFETT: It's always interesting when Bill and I appear together, they don't figure they can do what Bill does, but they know they can do what I do. [LAUGHTER] [APPLAUSE] We did both have a passion. We were doing what we did because we loved it. We weren't doing it to get rich. We probably felt if we did it well, we would get rich. But we'd have done it, you know, if somebody was slipping bread in under the door, you know, to keep us going. And so I think that passion for it is enormously important. I was lucky enough to have a couple of great teachers, particularly one great teacher. I had a great teacher in life in my father. But I had another great teacher in terms of profession in terms of Ben Graham. I was lucky enough to get the right foundation very early on. And then basically I didn't listen to anybody else. I just look in the mirror every morning and the mirror always agrees with me. And I go out and do what I believe I should be doing. And I'm not influenced by what other people think.



BECKY: All right. We'll get to Bill's answer on this in just a minute. [APPLAUSE] Bill Gates and Warren Buffett right after this break.





BECKY: All right. Welcome back, everybody. Welcome back to class. We have left that last break waiting for an answer from Bill Gates. Bill, if you had to pick one thing that makes you stand out from everyone else, what would that be?



GATES: Well, we talked about some of the basics, having great people around you, reading a lot, thinking long-term. I also think, though, there become a few magic moments where you have to have confidence in yourself. You know, Warren when he set off on his own, he could have gone and taken a job as an analyst somewhere. But he knew that he had the skill, that he was going to raise money and have his own partnership. When I dropped out of Harvard and said to my friends, ‘Come work for me,’ there was a certain kind of brass self-confidence in that. You have a few moments like that where trusting yourself and saying yes, this can come together -- you have to seize on those because not many come along.



BECKY: All right. Great advice. Believe in yourself. Guys, we're going to try and go into a cram session and get in some answers pretty rapid fire. Let's get right back here. We have a question.



QUESTION: My name is Nikki Shelton from Roseville, New York. I'm a second-year student here at the school. First, I just want to thank you guys for being great philanthropists. You guys have done a great job in the world. [APPLAUSE] And my question is for Mr. Buffett. You recently made a huge contribution to the Bill and Melinda Gates Foundation. If you can talk to us a little bit about what your reasoning was and how you'd like to see those funds used.



BUFFETT: Well, I wouldn't have given it to them unless I was 100% in sync with their objective, which is do the most good for the most people, wherever they may be, male or female, whatever their color, whatever their religion or so on. They believe every human life is equal to every other one. I am very good at making money. If you read what Adam Smith wrote in 1776 about specialization of labor, you know, he said if you need to deliver a baby, don't try to learn to do it yourself. Get an obstetrician. So Bill and Melinda will be better and my children who will also have foundations will be better at doing it than I would be. And that's fine. I'll work at what I'm good at and I'll let them do it. And they are doing it 100% in accord with my wishes.





BECKY: Another question right here.



QUESTION: Mr. Buffett and Mr. Gates, welcome to Columbia Business School. My name is Chris. I'm from Pennsylvania and I'm a first-year MBA student. My question is, who have been some of your most important mentors? And what lessons have you learned from them?



BECKY: Bill.



GATES: Well, I benefited from my dad and mom who set a great example. My dad was a lawyer and shared what he was doing at work. I have had some business partners that we have learned together, Steve Balmer in particular. And then I pick Warren as somebody I have learned an immense amount from, just hearing his stories of how he dealt with tough situations, how he thought long-term, how he models the world. If you get a chance to spend time with people like that, it's fantastic.



BECKY: All right. We will be right back. Stay right here.





BECKY: All right. Ready? Welcome back, everybody. This is real crunch time. Let's get right to it. You got it question?



QUESTION: Yeah. Welcome. My name is Steven Matthews. I am in the executive Business School here. Thanks for coming here. My question is on Apple . Mr. Gates, if you could just comment and tell us what your thoughts are on the job Steve Jobs has done as the CEO of Apple. [LAUGHTER]



GATES: Well, he's done a fantastic job. And Apple is in a bit of a different business where they make hardware and software together. But when Steve was coming back to Apple, which was actually through an acquisition of NeXT that he ran, Apple was in very tough shape. In fact, most likely, it wasn't going to survive. And he brought in a team. He brought in inspiration about great products and design that's made Apple back into being an incredible force in doing good things. And it's, you know, great to have competitors like that. We write software for Apple, Microsoft does. They compete with Apple. But he, of all the leaders in the industry that I have worked with, he showed more inspiration and he saved the company.



BECKY: OK. Tag, you're it.



QUESTION: Thank you. My name is Michael. I'm a first year MBA student. The question is for Mr. Gates. I was wondering if you think Google at all resembles Microsoft during Microsoft's early years.



GATES: Well, they have some of the same problems we had. [LAUGHTER] [APPLAUSE] It's another fine competitor. They are hiring a lot of smart people. They have gotten into the lead position in search, which is incredibly profitable to be number one in that. They may get a little competition as time goes forward. But they are a great example of what can happen, you know, two young guys who got together, pursued an idea and created a success that's absolutely gigantic. And we all, you know, hopefully use search engines, maybe a variety. [LAUGHTER] And we benefit from that.





BECKY: Right here.



QUESTION: Hi, I'm Josh Austin. I'm a second-year MBA student. My question is for you, Mr. Buffett. Value investors, such as yourself, believe that fundamental analysis, deep fundamental analysis is critical to intelligent investing. However, you have said several times in the past that you have made very rapid capital allocation decisions, sometimes in less than five minutes. I was wondering exactly which data gave you confidence in your decision.



BUFFETT: Well, that's 50 years of preparation and five (minutes) of decision making. [APPLAUSE]



BECKY: Can you just look at the spreadsheet? Can you look at an annual report and make a decision like that?



BUFFETT: Yeah. Sometimes I can. Just take Coca-Cola, for example. I sampled the product for 60 years and then I saw a couple of key ingredients, you know, that essentially tipped the scale in terms of buying it back in 1988. But the good big decisions, they don't take any time at all. If they take time, you're in trouble.



BECKY: All right. We will have more with Bill Gates and Warren Buffett, when we come right back.





BECKY: All right. Welcome back, everybody. Gentlemen, last question today. If America was a stock, would you buy it? Bill.



GATES: You bet.



BECKY: Warren.



BUFFETT: On margin. [LAUGHTER]



BECKY: Gentlemen, we want to thank you very much for your time. You've been wonderful. Bill, Warren, we really appreciate it. Let's give them a big round of applause, guys. [APPLAUSE] And we want to thank all of you, too. Columbia University, the Business School, Dean Hubbard, thank you, guys. We really appreciate it. It's been fantastic. That does it for us today. I'm Becky Quick, and if you want to watch this, you can go to CNBC.com and we will see you back here very soon.



Current Berkshire

Start up mode once again

Nice post by Deepak.

http://blog.investraction.com/2009/11/startup-mode-once-again-yay.html

Quarterly shareholder report from Long Leaf partners - US

A good read on the thought process of long leaf partners

http://www.longleafpartners.com/pdfs/09_q3.pdf

Very good Analysis by Rohit on IT Industry

Warning: A long post on the competitive analysis of IT companies (low in entertainment value :) ). So please get a cup of coffee or tea before you continue further

I recently received a comment from madhav

The question I have on outsourcing kind of IT companies like NIIT, Infosys, TCS etc is, "where is the moat?".

Every company seems to be into everything that happened yesterday, today or will happen in the future. All companies are generally present in all geographies, across all industry sectors etc. To top up the challenge, the "asset" of such IT companies are their people, but the employees keep hopping between the competitors and there is hardly anything preventing them from doing so. So where is the moat or where is the long term advantage? This also leads to the question - how do you value such a company?


This is an interesting question and there are several ways to answer it. I will try to answer it, by first doing a porter's five factor model analysis on IT companies (for more on this model you will have read this book). I will then use the conclusions from this analysis to answer madhav's question and see if we can value these companies.

The porter's five factor model has the following five factors, on which the moat of a company can be analyzed (by the way, I do this analysis for every investment I do)

Entry barrier : Level of entry barriers in the industry to a new entrant
Level of rivalry : Level of competition within the existing companies
Supplier power : bargaining power of suppliers
Buyer power : bargaining power of buyers
Substitute product : presence of substitute products

To read the rest. Please visit Rohit's blog by clicking the below link

 http://valueinvestorindia.blogspot.com/2009/11/competitive-analysis-of-it-companies.html

Words of Wisdom from Great Investors - Must read

Here is a collection of words of wisdom from value investor insight.

Thanks Valueinvesotorinsight:

Click the below link

Words of Wisdom

Top 10 based on EV/Ebitda with no leverage

Top 10 based on EV/Ebitda  with additional criteria

Market Cap > 50 Crores
3 Yr Sales growth > 5%
Total Debt = 0
All this data is not validated. Please do your due diligence. This is not any stock recommendation
 

Top 10 based on P/E with no leverage

Market Cap > 50 Crores

3 Yr Sales growth > 5%
Total Debt = 0

Top 10 Based on P/E

All this data is not validated. Please do your due diligence. This is not any stock recommendation

Top 10 based on P/B with additional criteria

Market Cap > 50 Crores
3 Yr Sales growth > 5%
Total Debt = 0
Top 10 Based on P/B

All this data is not validated. Please do your due diligence. This is not any stock recommendation

From Charlie Munger to Mohnish Pabrai - Check list

I have started using check list. This is a tremondous tool for every value investor. Please look at this slides from Mohnish Pabrai. He is one of my favorite investors.

http://www.slideshare.net/MShareS/how-mohnish-pabrai-uses-checklists-1984991?src=embed

Burlington Northern Santa Fe - Warren Buffet Transcript

LIZ CLAMAN, FOX BUSINESS NETWORK ANCHOR: Let's get to the story of the day. Berkshire Hathaway making this huge bet on the railroads. One in particular, acquiring Burlington Northern Santa Fe in a deal worth about $44 billion.

Let's talk to the man behind the deal. It was all his idea. On the phone, Warren Buffett, chairman and CEO of Berkshire Hathaway. Hello, Warren, how are you?

WARREN BUFFETT, CHAIRMAN/ CEO, BERKSHIRE HATHAWAY: Hi, Liz.

CLAMAN: What did you do? Did you wake up one day and say, " I think I'll spend another $26 billion in cash and stock for a railroad."? How did this come about?

BUFFETT: It came about because our board had a meeting (ph) scheduled for a year down in Fort Worth. The reason we have three different businesses we own in Fort Worth. And my Debbie Ballsonnick (ph), my assistant said, "Let's do the next one in Fort Worth and check out those companies."

So, we went down there a week ago last Thursday. And I went down a couple of hours earlier -- early because there were two people I wanted to see. One, my friend John Roach and then the other one was Matt Rose over at BNSF.

And while I was over there, we had about ten minutes alone after some vice presidents made a presentation. And I said, "Matt, if you're ever looking for a home for the railroad, Berkshire would make a good one."

And he didn't throw me out of the office, so the next day I made him an offer, and he said he would take it to the directors and the rest is history.

CLAMAN: So, it's a ten-minute meeting and then a week. That's awfully fast, but this is how you operate. You had already owned, of course, about 24 percent of Burlington Northern. What was it that crystalized your belief in that 10 minutes or the vice president's presentation that you ought to buy the whole thing?

BUFFETT: It wasn't -- it wasn't -- you know, I felt good about it from the time we bought our first stock in 2006. But if we hadn't scheduled the meeting down there, probably wouldn't have happened. At least it wouldn't have happened now.

But I -- you know, I like the business very much. I think the management is the best there is, and, like I say, when I didn't get thrown out of the office, I made it specific, and it was a good offer from their standpoint. And they decided to accept it. And now we're going to own a railroad. And we never fool around on things, Liz. I mean, I tell the lawyers, get this thing done, you know.

CLAMAN: I think Debbie Ballsonnick, your assistant who thought it best to put the meeting down there should get the big high five. No doubt at all.

BUFFETT: Well, yes, you'll see we didn't have an investment banker on the deal, but maybe we should have put her down.

CLAMAN: She's smart enough to do it. What is it, Warren, you see in the railroad transport area versus trucking or air cargo?

BUFFETT: Well, the rails move a freight at a much more environmentally friendly way than the truckers do. And they also only use about a third of the fuel. So, it's helping -- it helps our trade balance in the long run. It helps in terms of the atmosphere. It is a very, very efficient, effective, environmentally friendly way of moving freight. And, you know, our rail system is a huge asset to the country.


CLAMAN: BNI, of course, hauls about 10 percent of the nation's electricity-generating coal. Is this, Warren, a bet somehow on coal?


BUFFETT: Well, they haul a lot of coal and coal from the Powder River Basin in the West -- is more competitive, it's lower-sulfur coal than in the East. So, it will be around a long time. But coal, over the long run, coal will diminish in relative importance.


CLAMAN: There's a growing anti-rail lobby in Washington right now. I know you know because you do your homework on this stuff with a push by the shippers to re-regulate the rails -- the Railroad Antitrust Enforcement Act, if you will. Do you have any friends in Washington who assured you that railroads would not be re-regulated? Because I would imagine if the Obama administration went along with the shippers to regulate the rails, that might hurt your investment.


BUFFETT: Well, I would say since the Staggers Act back in 1980, which diminished the regulation substantially, you've had enormous progress with the rail system. You've decreased prices on inflation-adjusted terms significantly. So, I would say that the deregulation that took place starting in starting in 1980 is actually benefited the shippers enormously. And we're moving far, far more freight with using far less fuel, very efficiently. My guess is that people will see the rail for what they are, really an outstanding way of moving freight around the country.


CLAMAN: Cheapest, best way. But then there's cap-and-trade, Warren. Some analysts are very skittish about coal and a possible backlash if cap-and-trade goes through. You mentioned now -- you said, we're going to see a diminishing of coal use. But what do you think cap-and-trade would do to the business if that went through?

BUFFETT: It won't change the composition of what utilities are doing tomorrow or next week or next year. The utilities over time are going to use less coal and probably more nuclear. Our own utility, for example, uses wind very substantially in Iowa.

So, over time, coal is going to diminish somewhat. Now, I think that will hit Eastern coal more than Western coal, but that's a fact of life over a considerable period of time. And that's true whether there's cap-and-trade or not, yes.

CLAMAN: The way you structured this deal, you're using some Berkshire stock for this and then $16 billion, I believe, in cash to pull it off.

The Berkshire board approved a what? -- 50-to-1 split for the Class B(ph) shares. Why not all cash, Warren? Are you trying to preserve your cash at this point?

BUFFETT: I like to have a very comfortable level of cash. This is also the minimum amount of stock we can give and still have people be able to elect a tax-free deal that own BNSF stock currently. If we were going to use -- I don't like using stock, I can tell you that. I don't like issuing Berkshire shares.

CLAMAN: Is this the first time you've used stock?

BUFFETT: No. No, we've used it before. In fact, if you go back to

(INAUDIBLE) deal, that was an all-stock deal. But generally speaking, I'm not enthused about using stock. But using 40 percent and considering the fact we already own some, which we also bought for cash, we're mostly using cash in this transaction.

CLAMAN: You just mentioned the tax-free aspect. Can you clarify a little bit on that?

BUFFETT: Well, 40 percent of the deal will be stock, and everybody will be able to opt whether they want stock or cash. And if less than 40 percent opt for stock, they get an all-stock allocation. And if more than 40 percent, still, people who opt for stock will get mostly a stock allocation. And to the extent they get stock, it will be a tax-free exchange.

CLAMAN: To acquire a company of this size when transportation demand is down, of course, as you said, is really a bet on the U.S. economy. In fact, in the release you called it an all-out wager on the economic future of the United States. When do you see the total recovery taking hold?

BUFFETT: I don't know. But it doesn't really make any difference in terms of this acquisition. If we're going to hold something for a hundred years, the next week or month or year doesn't really make any difference. If we hold it a hundred years, I guarantee you there will be some recessionary years in that period. And it really doesn't make any difference whether it's the first year or the fifth year or the eighteenth year. We're in for keeps.

CLAMAN: It's funny you did this with the rails because just two weeks ago we had Bob Oldstein of the Oldstein Funds on saying the rails are overstating their earnings and underdepreciating their equipment.

Do you see it that way? Did you look into that?

BUFFETT: It's true. I didn't have to listen to that, but it's true any company that has long-life assets is replacing assets that they bought many years ago with things that cost more money now. That's true of our utility business, that's true of any business. It's true -- if you build a plant that 30 years ago had a 30-year life. When you go to replace that same plant, it's going to cost you more money. That's a fact of life in an inflationary economy.

CLAMAN: One year ago in September, we were all so nervous, and that's when President Bush and Hank Paulson pushed through T.A.R.P. Since then, we've had the stimulus. You have said when you treat a patient with such a huge amount of medicine, the likes of which we've never done before, somewhere down the line, we're going to see the ramifications. What do you think those ramifications will be, and aren't you worried to make such a huge purchase knowing that that may come to pass

BUFFETT: I'd be more worried holding cash. I think that if you look at the side effects of the incredible dosage that we've had to give -- and I think that dosage has been 100 percent appropriate; I'm not knocking that. But when you apply the kind of medicine we've applied, you may have sort of unprecedented aftereffects, too. But the one thing about those unprecedented aftereffects is they're going to be very bad for cash. I would much rather own working assets than have cash in a period that well could become inflationary down the road.

CLAMAN: But that's with the headwinds, though. You told me back in May and repeat in June the commercial real estate would, quote, "hit the skids big-time," and now we see that it is. What makes you think the businesses would ship more goods by a railroad when that kind of headwind is blowing in dark clouds? Or is this such a long-term bet at this point that you're not looking the next two years out?

BUFFETT: OK. Thank you, Liz.

BUFFETT: I don't know what will ship next year, but I would bet a lot of money -- in fact, we have bet a lot of money -- ten years from now there will be more people in the United States and they will be consuming more things than they consume now. And that will be more so 20 years from now and 30 years from now.

So, there's going to be goods moving around for more and more people who are going to be consuming more and more of them, and certainly, rails should not only get a share but probably should probably get a little more than their share. It's a bet on the American economy essentially continuing to prosper over time just as it's prospered every since 1776.

CLAMAN: A lot of employers you're taking on here. Universal healthcare is at the forefront of a lot of people's minds. Do you think as you look what the government is attempting to do and Congress, now is the time to tackle such an expensive problem?

BUFFETT: Well, I think it's long past the time we tackle health care.

But one of the real problems is the incentives in the system, and they’re very tough to get to. But we do spend 16 percent or so GDP on health care in the United States. And we have to figure out some way to slow down that particular engine.

CLAMAN: Do you think the wealthy should be taxed to pay for healthcare for all?

BUFFETT: I think the wealthy overall should be taxed more relative to the poor and the middle class.

CLAMAN: Here's a worry, though. The House bill calls for that 5 percent surtax on the wealthy, but it’s not indexed for inflation. Could that end up mimicking the alternative minimum tax which originally was supposed to tax only the rich, and now, as you know, police officers and teachers have to pay it?

BUFFETT: Well, I haven't read the 1,900 some pages in their entirety. I do know they have the 5 percent tax -- I think it's on incomes of over $500,000 or something. You're right, the way I read it, it's not index.

But as a practical matter, I think that the wealthy have had their share of overall taxes, counting payroll taxes diminish significantly in the last 20 years. So I think that if you're looking for more revenue from the citizenry, I think the rich are the place to look.

CLAMAN: And that's you.

BUFFETT: That's me, right!

CLAMAN: You're okay with it?

BUFFETT: Absolutely.

CLAMAN: I always take your temperature each time we speak when it comes to President Pbama. Back in June, the last time you spoke you were very happy with all he's done. Does that sentiment continue?

BUFFETT: I am very, very glad I worked for and voted for President Obama, and I think he's the right man to have in the job.

CLAMAN: You're not concerned about all the spending that's going on at the moment?

BUFFETT: I think it's been -- I think it's necessary. I think a lot of the things we've done in of the last year or 15 months will have aftereffects. But I think they've been very important. We came very close to going into the abyss a year ago. And, you know, they've had to do some very unusual things, and some will have later costs. But they still were the right things to do.

CLAMAN: You wrote in back in August in the "Times" "the dollar's destiny lies with Congress." And with the deficit for 2009 -- listen, the numbers keep changing but $1.4 trillion, 10 percent of GDP high since 1945. Are you buying foreign currencies now or at least playing that carry trade since the dollar's so weak and there are other currencies with better yield? And I know you don't like to talk about what you're doing but, you know, as you see the dollar.


BUFFETT: You're seeing us get rid of a lot of dollars today in exchange for a lot of assets. So, I would rather own physical assets than own dollars.


CLAMAN: OK. As we finish up here, I have to ask, is this Burlington Northern purchase really just a chance to beef up your Lionel Train collection you have in the attic?



BUFFETT: I've got -- I’ve got a pretty good railroad on the third floor, but it’s nothing compared to the Burlington Northern...



CLAMAN: Yes. Matt Rose of Burlington Northern just said he's getting thousands and thousands of railcars to add to that collection.


BUFFETT: Yes. Right! Right!

CLAMAN: Thank you so much, Mr. Buffett.

Gwalior Chemicals Update

Gwalior chemicals came up with an announcement that it will buy back shares at Rs.120 currently trading at 89. What's more interesting is that the promoters would also participate in the buy back offer.

As we all know that it is still undervalued with sitting on Rs130 - Rs 150 / share cash. They are buying back only 25% which is the maximum a company can buy back in a financial year.

Most important questions

- Why the promoters are participating in Buy back? Does that indicate that they do not want to take it Private?
-  and the most important question, how are they going to spend the remaining money. They want to get into Power business and Speciality chemicals. I understand he reasoning getting into Chemical business but what core competency they have getting into power business
- What is the catalyst to unlock this value?

Will keep you more updates

How to Evaluate brands/moats - Warren Buffet thought process

Obviously Warren Buffet has lot of insight ful comments but some comments provide more information on his thought process. 

We all know that for commodity companies we need to pick the low cost provider and for branded companies, it is the share of the mind that matters. How Coca cola is unique company where it has both share of mind, low cost provider worldwide and value to consumers. This has a powerful lalapalooza effect. Read this interview to think about how to evaluate which brands are more valuable?

Buffett: Will developments in the generic brand area hurt Coca-Cola? That’s a terribly important question.


“Generic brands have been with us a long time. But lately they’ve attracted a great deal of attention—partly because they’re doing better and in particular because of Philip Morris’s actions a few weeks ago—when, in reaction to the threat and the inroads of generics, they cut the price dramatically on Marlboro.

“I wouldn’t say Marlboro is the most valuable brand name in the world. Coca-Cola is more valuable—and I think that’s been proven by subsequent events. But Marlboro earned more money than any brand name in the world.

“And all of a sudden, Philip Morris took some actions which dramatically reduced the earnings of that brand and changed the pricing dynamic that had existed in the cigarette business for many decades. And since then, Philip Morris has had $16 billion lopped off its market value and RJR’s suffered accordingly.

“It’s a terribly interesting case study and it illustrates one of the dangers of generic competition. Philip Morris cigarettes got to where they were selling for $2.00 a pack. The average cigarette consumer uses something close to ten packs a week. Meanwhile, the generic was at about $1 or thereabouts. So you really have a $500 a year differential in cost per year to a ten-pack-a-week smoker. And that is a big annual cost differential. You better have something that people think is dramatically better than the generic for the average consumer to shell out an extra $500 a year. It’s happening in other areas, too—whether it’s corn flakes or diapers or a lot of things...

“In our case, I think the Gillette brand name, for example, is far better protected against generic competition than the main product of Philip Morris—although there always has been generic competition in blades and there always will be.

“The average male purchases something like 30 blades a year. He pays 70 cents each if he buys the best—which is the Sensor. That’s $21 a year. The best he can do if he wants something that leaves him Band-Aids on his face and an uncomfortable experience costs him $10 a year. So you’re talking $11 for a 365-day experience...

“I think there’s a generic threat of some sort in any industry where the leaders are earning high returns on equity. It just stands to reason that that’s going to encourage competition.

“And the threat may be accelerating in many industries. But I think that brand names with the right ingredients are enormously valuable. Sometimes infrastructure is a problem for the generics. The worldwide infrastructure for Coca-Cola, for example, is very impressive and very hard for a generic provider to duplicate.

“But if somebody wants to sell a generic box of chocolates in California against See’s Chocolates, that’s obviously somewhat of a threat. And I just hope that they take them home on Valentine’s Day and say, ‘Here, Honey, I took the low bid.’ ”

“Wal-Mart’s selling Sam’s Cola. And Wal-Mart is a very, very potent force. One thing that’s helpful is that they were selling it as cheap as $4 a case here. And I don’t believe that’s sustainable. That’s 162/3 cents a can.

“It’s been a while since I looked at aluminum—and it’s down. But I think the can is close to a six-cent item by itself. The can is far more expensive than the ingredients... Distribution costs, trucking, stocking and all that sort of thing have to be fairly similar. In a 12-ounce can, there’s 1.3 ounces of sugar—which at the domestic price, would be around 13/4 cents per can. And that’s got to be the same whether it’s Sam’s Cola or Coca-Cola.

“The Coca-Cola Company sells about 700 million 8-ounce servings—largely of Coca-Cola, but also of other soft drinks—worldwide every day. If you take 700 million and multiply it by 365 days, you come up with 250 billion or so 8-ounce servings of Coke or its products in the world each year.

“The Coca-Cola Company made about $21/2 billion pretax last year. That’s one penny per serving. One penny per serving does not leave a huge umbrella. The generic is not going to buy the can any cheaper. And they’re not going to buy the sugar any cheaper and so on. Their trucks aren’t going to be any cheaper.”

So while everyone is busy looking at P/E Ratios and making forecasts into the future, Buffett simply looks at the business from a businessman's point of view. Ands that all you've got to do folks to succeed in this game.

True to form: 'I'm a better investor because I am a businessman and a better businessman because I am an investor.'

Awesome information about Walter Schloss - Great Post Market Blog

Inspired by the Walter Schloss: 16 Golden Rules For Investing,  These articles are indeed timeless and have a ton of information that is exceptional.

Here are some excerpts of the article
For sheer uninterrupted excellence few investors can match Walter Schloss. For 45 years, from 1955 through 2000, Walter Schloss has managed  the same investment partnership. The compound rate of return for his Limited.  Partners was 721.5x or 15.7% per year compared to a gain for the S&P Industrial Average
of 117.5x or 11.2% per year. In 1973, Walter’s son, Edwin, joined the partnership and the fund became known as Walter & Edwin Schloss Associates. In 2001, Walter and Edwin decided to close up shop and
liquidate the fund. I sat down with Walter and Edwin and asked them about their careers, why they decided to shut down, and what the future has in store


There are 16 lessons on http://mrmarketblog.com/?page_id=23. All are must read.

Please visit http://mrmarketblog.com/?page_id=23 for more information.